A Better Welfare System

An ever-growing share of US Government spending is going towards welfare programs, including food stamps, child care, housing, medical care, preschool, and even debit cards with a certain amount of spending cash. And yet there are still children going hungry over the summer and weekends because they aren’t in school and the adults who should care for them don’t, and therefore they don’t get meals provided. Most schools now offer breakfast and lunch. Many soon will probably offer dinner and meals during summers and weekends (some are already starting).

The fundamental issue with the current welfare system is the same one that is always seen with any sort of central planning: It is impossible for a few individuals, no matter how well-intentioned, to do what is best for millions of different people. As a result, some people abuse the system. Politician then try to put in safeguards to stop the abuse, usually in the form of additional hoops to jump through. This results in the people who really need help finding it extremely difficult to get the help they need. And yet those who abuse the system still find a way to do so.

Another issue is that, with central planning, it is just easier to send out a check than it is to do what is needed to make sure the money is spent prudently. We’re sending money to people, many of whom have already shown that they do not handle money properly and do not make good life choices, and then expect them to somehow take care of their needs in a conscientious manner. The issue again is that there are too few people to provide the monitoring and personal attention needed. Sure, a lot of people find ways to turn their food stamp money into cigarettes and alcohol, or maybe buy porterhouse steaks for themselves (and let their kids starve) when people buying their own food are buying ground chuck, but it is too hard to fight the abuse. So we end up paying for their food and then end up paying again when their children show up at school hungry or when the adults run out of food mid-month and come to the food pantry or the soup kitchen.

We also provide just enough support to let people stay on drugs or make other bad life choices. At times we even trap people by giving just enough for necessities and to sustain a modest existence, but then take money away if people actually start to work and provide for themselves. While taking a real job and working your way out is the way to end up in a better place eventually, many people don’t want to go through the temporary pain that such a transition would cause.

The solution is to decentralize welfare. Imagine how much good local groups could do if they received the money currently spent on welfare and gave it out instead. Local groups would know about local needs. They would know who really needs help and who is gaming the system. They would be able to put in the time to know the community and do things that actually help people. They would have the time to make sure the help being given actually helped people improve their lives, rather than enable them to stay on a destructive path.

But then there is still the issue of getting the money to these groups. Just as there is corruption when the government sends out checks to individuals, there would be corruption if the government were sending out checks to aid organizations. There would be scam artists who create phony charity organizations. There would also be side deals as politicians sent the money to their friends and donors, who could then use the government money to gain power just as corrupt politicians do.

The answer is simple – cut the government out entirely. Here’s how:

Create a new tax credit for charitable giving that replaces the need for existing government programs. Allow individuals to reduce their taxes, dollar-for-dollar, by up to 10% of their income when they give to organizations that provide these services.

Let’s say that you make $80,000 per year and would owe $9600 in taxes. Assume also that you’ve paid $12,000 in estimated taxes, so normally you would be getting a $2600 refund while the government gets $9600, $8,000 of which would then go to welfare programs. You decide to donate $8,000 to the local food bank, which would then buy $8,000 worth of food and distribute it to people in your area that needed food. You would simply indicate on your form that you donated $8,000 to the food bank, which would reduce your taxes by $8,000, and then the food bank could receive an $8,000 check from the IRS while you still received your $2,600 refund. Alternatively, you could have been making monthly donations of $667 dollars to the food bank, such that you would have given $8,000 throughout the year, and reduced your withholding by the same amount. In the end, you would have paid $1600 in taxes and donated $8,000 to the food bank.

People who need food would receive $8,000 worth of food. The only difference is they would get it from the food bank, which would be able to verify need and maybe push those who could provide for themselves into doing so, rather than getting a check from the government. People at the food bank could also stretch the money and make it go farther than would many of the people who received food stamps. In addition, if the money had gone to the government and then out through welfare, something like $6,700 might actually make it back to people in need, after various people in the government took their cut along the way rather than the full $8,000. Note that people in higher-cost areas also make higher salaries, so they would be able to give higher amounts to their local charities, offsetting the higher cost of living. People in New York City would receive just as much food, clothing, housing, and other services as those in Fargo, ND.

The system would also police itself. If people thought that a charity was not doing a good job, or if they found that everyone in their area was taken care of and additional money was not needed, they could give to charities in other areas. They could also give to foreign peoples through charities, just as the government gives foreign aid, or support other things like the arts, scientific research, or other areas. Again, there would be no loss in income to these institutions since money no longer sent from the government would now be sent directly by the people – in fact overall the causes would get more money since the distribution system would be more efficient. If a charity or other provider was wasteful, the local individuals would be likely to see this and donate somewhere else. Just as in free enterprise, the charities that did the best job would receive the most money.

So that’s the plan. Very simple – just a new line on the tax form. If you like this idea, please tell your Congressman.

Please contact me via vtsioriginal@yahoo.com or leave a comment. Check out other ideas by selecting “Small Ivy’s Big Ideas” from the menu at the top under “Commentary.”

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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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